Time for a bold approach on fuel

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THE alacrity with which the Federal Government dropped a planned
increase in the petrol excise is a sign of the times. There is no
question that petrol pricing has quickly become one of the most
politically sensitive issues of the day. Until the start of the
year, a few extra cents a litre here or there hardly caused a
ripple of public concern. But the convulsions in prices over the
past few months - the price at the bowser has increased by almost
25 per cent since July 1 - are unparalleled in recent years. There
is no question that the price increase is deeply affecting many
Australian families.

Explanations for the price hike have run thick and fast. First
it was the impact of the Iraq war on production, then the failure
of the oil companies to increase their refining capabilities,
China's rising energy demands and, most recently, hurricane
Katrina's effect on oil production in the Gulf of Mexico. Of
course, Federal Government excise accounts for 38 cents of the
price of every litre of petrol, while the states' GST take is
currently around 11 cents. The refiner/retailer cut is around six
cents a litre, while the crude oil supplier accounts for the
balance - at the moment around 71 cents. Prime Minister John Howard
made it clear yesterday that the Government has no intention of
reducing the excise. This is not an unreasonable position to take,
given that a one-cent-a-litre cut in excise would trim $380 million
from Federal Government coffers, while delivering minimal benefit
to consumers. For government intervention to have any real impact,
a far greater excise cut would be required and soaring crude prices
could just as easily wipe out any benefits.

Now the Government has decided not to proceed with a planned
meagre increase in the petrol excise. The abandoned
0.06-cents-a-litre impost, which was to be introduced on January 1
next year, was meant to encourage refiners to develop more
environmentally friendly fuel. This is regrettable because measures
are needed to encourage the development of cleaner alternatives.
The increase was expected to raise around $120 million over three
years. While politics may deem the increase unpalatable now, it
would be a shame if similar financial incentives were not provided
to producers and importers of low-sulphur premium-grade petrol.
Continuing high petrol prices will have their own effect on oil
demand, but it is vital that in the longer term, governments
encourage better use of dwindling fuel reserves, improved public
transport, more efficiently planned cities and the development of
sustainable fuel alternatives.

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